When is it wrongful for an insurer to deny coverage to its insured in the state of California?
California Civil Jury Instructions Section 2300 outlines the requirements to establish that an insurer breached its contract to cover a loss for its insured. The 3 elements are:
- The plaintiff suffered a loss, all or part of which was covered under an insurance policy with [name of defendant
- The defendant was notiﬁed of the loss as required by the policy
- The amount of the covered loss that [name of defendant] failed to pay.
Insurance policies may select from a number of possible reasons to deny a claim. These include but are not limited to:
- The insurance policy does not cover the type of treatment needed for an injury.
- The procedure being sought is cosmetic or unnecessary.
- The claimant lacked pre-authorization or a referral.
- The treatment is being given by an out-of-network provider.
- The claim has typographical errors
- The claim was not made in a timely manner.
An insurer must provide a notice of denial if they choose to reject the claim, and include the reason for their decision. A claimant may submit an appeal of this notice, which outlines the arguments against the rejection. If the insurer denies the appeal, legal action may be necessary.
When an insurer wrongfully denies a claim appeal, they are acting in bad faith. The insurer must not try to deny what is contractually obligated to their insured. The elements of insurance bad faith in denying coverage are more specific than a simple breach of contract. They are outlined in California Civil Jury Instructions 2331, and include:
- The plaintiff suffered a loss covered under an insurance policy with [name of defendant];
- The defendant was notiﬁed of the loss;
- The defendant unreasonably [failed to pay/delayed payment of] policy beneﬁts;
- The plaintiff was harmed; and
- The defendant’s [failure to pay/delay in payment of] policy beneﬁts was a substantial factor in causing harm to the plaintiff
A Vital Part of Establishing Bad Faith
A vital part of establishing that an insurer acted in bad faith is proving that the insurer not only breached the contract but did so in an “unreasonable” way. Just because an insurer breaches a contract by wrongfully denying a claim does not necessarily mean it acted in bad faith.
Some examples of this would include an insurer denying coverage of a procedure that is debatably cosmetic or denying a claim based on an honest error from the insurer. To constitute bad faith, the denial must be based on unreasonable action, which is harder to establish.
California Judicial Code 2331 gives some factors that tend to constitute bad faith in denying a claim. These include, but are not limited to:
- Failure to acknowledge a claim or respond to it in a reasonable amount of time.
- Ignoring or failing to provide evidence to support a claim decision.
- Falsifying or misrepresenting relevant facts or evidence related to the claim.
- Failing to investigate a claim that was reasonably made.